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Boom and bust: Wall Street's seven deadly sins exposed in scathing detail

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Bob Ivry, an award-winning investigative reporter for Bloomberg News, sets out to explain how, despite causing the devastating crash of 2008, the biggest banks in the U.S. have since become even bigger and richer.

Written in white-hot anger and enlivened by vivid anecdotes and Swiftian satire, and blessedly free of jargon, Ivry cogently makes his case that the public's demand for controls against banking excesses was answered by spin rather than substance.

Ivry's credibility is enhanced by his background. Although he is describing "the war fought by the rich against the poor," this is not the special pleading of a Marxist enthusiast but a cry of rage from a bastion of capitalism. Ivry is a Bloomberg man, a disciple of competition and the free market.

He is disgusted by a system that nullifies the free market by bailing out banks made insolvent by their own mendacity -- by allowing them to own commodity and energy companies, thus enabling them to fix prices and to gamble with other people's money on the likes of unregulated derivative trades while hiding their corruption behind "thick impenetrable blocks of pure baloney."

The book is organized into seven chapters, each describing one of what Ivry calls Wall Street's seven sins: size, secrecy, regulatory capture, excessive pride, complexity, impunity and predatory greed.

Whatever the sin, every chapter is enriched with fascinating stories of sleazy villains (many), defrauded victims (too many) and heroes (too few).

Usually, mortgages work well for both mortgage lenders and homebuyers.

However, about 15 years ago, financial institutions began to buy mortgages from the original lenders and bundle them by the hundreds into securities to be sold to investors all over the world.

What those investors were unaware of was that many were worthless sub-prime mortgages knowingly issued to people too poor to ever repay them. Such predatory lending was widespread.

In 2008, when the bubble burst and the large American banks went broke, it became clear that the loss of the trillions of dollars they were supposed to be holding in trust for depositors, combined with their involvement in non-banking businesses, would wipe out millions of businesses, jobs and retirement savings accounts.

They were too big to fail. Not only that. As U.S. Attorney General Eric Holder remarked, they were also "too big to jail."

The banks' private debts became the public's responsibility when the U.S. government bailed them out with taxpayers' money rather than risk an economic cataclysm.

After 2008, the banks, shameless and brazen, figured out how to game government programs intended to give relief to struggling homeowners, thereby increasing their own profits while leaving most homeowners destitute.

As Ivry says, "Bankers' rights expanded immeasurably after the (2008) crisis... they can (continue to) use cash from customer deposits to roll the dice in the derivatives casino; they can mix trading oil with the business of drilling for, shipping, refining and selling it; they can continue to defraud the same U.S. government that bailed them out."

American politicians, including President Barack Obama, piously promised to shrink the big banks so small that their failure would not threaten the global financial system.

But the big banks weren't worried -- they knew those politicians depend on them to help pay their huge campaign debts.

For instance, the 22 members of the Senate Banking Committee altogether received about $15 million from securities and investment firms during the 2012 elections cycle.

Many also hope to get through the revolving door that cycles politicians into lucrative business jobs, and businesspeople into cabinet and regulatory positions.

A political aide told Ivry, "The dirty secret of American politics is that, for most politicians, getting elected is just not that important. What matters is post-election employment."

In 2010, Congress passed the so-called Dodd-Frank Act that was supposed to break up the big banks and ensure that debacles of the 2008 kind would never again happen. However, it was so watered down by venal politicians that the big banks survived, and Ivry believes its other provisions may only have a minimal effect.

Ivry ends by proposing a set of practical solutions but, as they depend on political will, he is not optimistic. He sees America careening towards financial and social disaster unless it finds a way to make its financial and political institutions truly serve the public interest.

Don't be put off by the esoteric world of finance. You may not understand derivative trades or credit default swaps (who does?), but you'll understand corruption.

 

John K. Collins thinks Bob Ivry should be invited to Canada.

Republished from the Winnipeg Free Press print edition March 29, 2014 G5

History

Updated on Saturday, March 29, 2014 at 7:53 AM CDT: Tweaks formatting.

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